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Business newsToyota has high hopes for St. Petersburg plant
08.25.2006 11:45

Toyota Motor Corp. is aiming to be the first Japanese automaker to start production in the St. Petersburg area with a factory it is building deep in the forest on the outskirts of the city.

Construction continues at the site of Toyota's sedan factory on the outskirts of St. Petersburg, Russia.

Japan's No. 1 automaker began construction at the 224-hectare site in June 2005 and aims to start up the plant in December 2007.

Russia's fast-growing auto market, posting a 50 percent rise in sales of new foreign cars in recent years, is very promising, according to Toyota officials.

"In Russia, the car-ownership ratio is still one car to 6.4 people, whereas the ratio is 1 to 2 in Europe and 1 to about 1 in the United States," said Ichiro Chiba, deputy general director of Toyota Motor Manufacturing Russia LLC.

"In other words, there are about 20 million vehicles in Russia, whose population is 140 million," he said. "We see ample room for new car sales to grow."

Masaaki Mizukawa, general director of the firm, said Toyota picked the factory site in the city's Shushary district among some 30 possibilities due to its proximity to key distribution points, including railways and ports.

St. Petersburg, which faces the Gulf of Finland, is Russia's "window to Europe" and the factory will be close to Pulkovo Airport.

General Motors Corp. has decided to build a factory for the domestic market right next door, Chiba and Mizukawa said.

The 50,000-sq.-meter Toyota factory, which will take up one-quarter of the vast lot, is expected to be completed by next April. It will begin assembling Camry sedans at the end of 2007, initially 20,000 units annually but later expanding to 50,000, they said.

The additional land will give the carmaker the ability to expand production and possibly start exporting. Toyota now leases the former public land but aims to purchase it next spring when the factory is built, they said.

Toyota began selling its vehicles in Russia in 2002 after establishing a domestic sales company. It sold 9,000 units that first year, but the number ballooned to 66,000 in 2005, claiming the No. 2 position among foreign carmakers, after South Korea's Hyundai Motor Co., which sold 87,000 units.

In the first half of 2006, Toyota car sales reached 45,120 units, data compiled by a Russian research firm show.

Major Toyota brand cars sold in Russia include the Camry, Corolla, Avensis, RAV4, and Lexus luxury models. Avensis cars manufactured in Britain and Corolla Verso wagons assembled in Turkey are exported to Russia, while other cars are shipped from Japan complete, Mizukawa said.

"It is unusual that the auto market is expanding in such a short period in one country," Chiba said.

"The percentage of middle-class people and professionals, including lawyers, accountants and consultants, has been rising, and the annual salaries of executives from gigantic corporations, such as Gazprom, are more than 10 million yen -- the same as those of Japanese."

Gazprom is a partially state-owned company that has become a symbol of Russian wealth. The major exporter of oil and natural gas has gained from high global energy prices.

While the average Russian monthly salary is about $ 500, many people make enough money to afford Camry sedans -- priced at around $ 40,000 -- Chiba said.

South Korean vehicles are popular because they sell lower-end models with reasonable prices, he said.

"Since demand is so strong, we cannot extensively advertise our vehicles because that would extend the waiting period for back orders," Chiba said, adding that customers already have to wait several months for their cars.

Toyota has a good reputation in Russia, Chiba said.

"People in (Russia's) Far East who have imported Toyota vehicles from Japan know they are strong and durable, while Russians must have heard from their relatives and friends who live in the United States that our models are known for being fuel-efficient and environmentally friendly," he said.

Russian President Vladimir Putin, a native of St. Petersburg, attended the groundbreaking ceremony for the Toyota factory in June 2005. He gave Toyota Land Cruisers to all the male athletes and luxury Toyota Lexuses to all the female athletes who won medals at the Turin Olympics in February.

Toyota representatives said they felt the "passion and enthusiasm" of local Russian officials to woo foreign investment.

Moscow has taken a number of steps to encourage investment, including lowering tariffs on auto parts from current levels of up to 20 percent, offering tax breaks and creating special economic zones. After Russia joins the World Trade Organization, tariffs on complete cars will be cut from 25 percent and investment conditions will be further liberalized, creating big business opportunities, the Toyota reps said.

Nissan Motor Co. has also decided to build a factory in St. Petersburg, aiming to begin production in 2009. Other major automakers, including Ford Motor Co., Renault S.A., BMW AG and South Korea's Kia Motors Corp., already are assembling vehicles in Russia.